Construction contractors and equipment distributors are optimistic that local non-residential construction activity will improve in 2014, according to a recent survey by Wells Fargo Equipment Finance, a subsidiary of Wells Fargo & Company (NYSE: WFC). As part of its 2014 Construction Industry Forecast (PDF)*, Wells Fargo’s construction Optimism Quotient (OQ) – the survey’s primary benchmark for measuring contractor and equipment distributor sentiment – is at a historic high of 124, up 18 points from 106 in 2013 and up from the survey low of 42 in 2009.

“The strong sense of optimism about construction activity is a natural contributor to the upward trends in construction equipment acquisition and rental we expect to see in 2014,” said John Crum, senior vice president and national sales manager of the Construction Group at Wells Fargo Equipment Finance. “In fact, unit counts of light and heavy construction equipment sold in the U.S. correspond quite well with the curve of the Optimism Quotient over the last 10 years.”

This survey marks the 38th year in which Wells Fargo Equipment Finance and its predecessors have published primary research findings for the infrastructure construction industry. Conducted between January 8 and January 24, 2014, the survey includes responses from 522 construction industry executives from across the U.S. This year’s increase in the OQ marks the third consecutive year with an optimistic reading. An OQ over 100 is considered optimistic sentiment towards year-over-year improvement in local non-residential construction activity.

Wells Fargo’s construction Optimism Quotient (OQ)

Survey Year

Optimism Quotient (surveyed in January)

2014

124

2013

106

2012

114

2011

96

2010

66

2009

42

Wells Fargo Equipment Finance annual Construction Industry Forecast

Highlights of the 2014 Construction Industry Forecast include the following:

Equipment rental remains strong. Nearly 80 percent of surveyed contractors said they rented equipment in 2013, and 91.2 percent said they intend to rent in 2014. Distributors and equipment rental companies almost universally say they will maintain or grow their rental fleets. When asked to cite their reasons for renting versus purchasing, 72.8 percent of contractors identified “lack of consistent work” ahead of “need for project-specific equipment” (67.4%) and “overall equipment costs” (52.5%).

Equipment acquisition is on the rise. Sentiment among U.S. contractors is that purchases of new construction equipment in 2014 will remain similar to, or perhaps increase slightly, compared to 2013. One quarter (26.1%) said they would increase their purchases of new equipment compared to a year ago, a 5.3 percentage point improvement. One in ten contractors (11.9%) said they would not acquire new construction equipment in 2014, an improvement from 19.1 percent in 2013.

For the coming year almost two-thirds of distributors (62.7%) said that they expect an increase in new equipment sales. A similar but less robust group (57.5%) said they expect growth in used equipment sales.

Equipment purchases on the Internet continue. The survey revealed a meaningful proportion of contractors that are willing to acquire construction equipment on the Internet. One in five contractors (20%) said they have recently acquired equipment over the Internet without having inspected it personally. Of those who acquired equipment without a personal inspection, 80.4 percent said their purchase amounted to less than $250,000. They also overwhelmingly said they were satisfied (68.6%) or extremely satisfied (19.6%) with the purchase.

Risks and regulations impacting business. The survey also offered a chance for executives to weigh in on risks they considered most pressing and the regulatory issues that were of greatest interest. More than 80 percent of executives cited “economic uncertainty” as the factor that poses the greatest risk to the U.S. construction industry in 2014. “Political uncertainty” was not far behind at 67.6 percent while rising interest rates (45.0%) and regulatory uncertainty (43.5%) were a close third and fourth. The regulatory issue of greatest interest (69.2%) for the year was related to tax incentives such as Bonus Depreciation and Section 179 deductions. The Highway Funding Bill (60.2%) and the Affordable Care Act (46.6%) were also among those issues most frequently listed.

About Wells Fargo Equipment Finance Wells Fargo Equipment Finance provides competitive fixed- and floating-rate loans and leases covering a full range of commercial equipment for businesses nationwide as well as floor planning and inventory financing, and vendor programs in selected industries in the United States and Canada. Wells Fargo Equipment Finance is the second largest bank affiliated equipment leasing and finance business in the United States by asset portfolio and annual originations, with more than 130,000 customers, and 1,100 team members. Wells Fargo Equipment Finance is the trade name of the equipment finance businesses of Wells Fargo Bank, N.A. and its subsidiaries. Canadian business is transacted by Wells Fargo Equipment Finance Company.

About Wells Fargo Wells Fargo & Company (NYSE: WFC) is a nationwide, diversified, community-based financial services company with $1.5 trillion in assets. Founded in 1852 and headquartered in San Francisco, Wells Fargo provides banking, insurance, investments, mortgage, and consumer and commercial finance through more than 9,000 stores, 12,000 ATMs, and the Internet (wellsfargo.com), and has offices in more than 35 countries to support the bank’s customers who conduct business in the global economy. With more than 270,000 team members, Wells Fargo serves one in three households in the United States. Wells Fargo & Company was ranked No. 25 on Fortune’s 2013 rankings of America’s largest corporations. Wells Fargo’s vision is to satisfy all our customers’ financial needs and help them succeed financially. Wells Fargo perspectives are also available at blogs.wellsfargo.com.